On Oct. 5, 2012, Commissioner Mark Ferron of the California Public Utilities Commission (“Commission”) issued a 39-page ruling including a number of proposals to improve California's Renewables Portfolio Standard (“RPS”) procurement process. Specifically, he proposed an:

[E]ffort to streamline the RPS contract review process, increase the transparency of the Commission’s review of RPS procurement, establish clear standards for this review process, issue Commission determinations on contract reasonableness on a defined timeline, and generally, to support market certainty in RPS procurement.

The ruling requests comments and input from interested parties and poses specific discussion questions for each of the proposals and issues. Commissioner Ferron’s ruling also offers stakeholders in the RPS procurement process and California renewable energy markets an important opportunity to address deficiencies that almost all participants have endured in the RPS procurement process and suggest improvements.

Given the statements of various Commissioners in the last few months regarding the need for change in the RPS procurement process, the Commission may never be as receptive to “constructive criticism” from stakeholders regarding the RPS procurement process as they are right now. Comments are due Nov. 20, and reply comments must be submitted by Dec. 12, 2012.

BackgroundThe ruling explains that improvements to the RPS procurement process are necessary to better ensure market certainty. To provide context, the ruling notes a number of major changes that have taken place in the California renewable energy markets over the past couple of years:

A 250 percent increase in the number of bids and a 150 percent increase in the number of developers in the 2011 RPS solicitation as compared with the 2009 RPS solicitation.

The total amount of renewable energy generation bid into the 2011 RPS solicitation is 4.5 times greater than the total compliance need under the RPS.

The average bid price of RPS projects decreased by approximately 30 percent between the 2009 and 2011 solicitations.

Given these major changes, the Commission will endeavor to make process improvements that will increase efficiency and transparency.

Specific proposals included in the rulingCommission Ferron seeks comment on a number of specific proposals relating to RPS procurement.

Proposal 1 – Review IOU shortlists via a Tier 3 Advice LetterAfter receiving bids in response to their RPS solicitations, investor-owned utilities (“IOUs”) create a shortlist that meets their Commission-approved evaluation criteria. Currently, these shortlists are approved at the staff level by the Commisison’s Energy Division. The IOUs then proceed to negotiate with bidders on their shortlist and then submit final executed contracts for approval by the full Commission.

Commissioner Ferron proposes approval of the IOUs' shortlists by resolution of the full Commission. By putting more emphasis on the review of the shortlist, the proposal hopes to streamline the later contract review process and, presumably, to minimize regulatory uncertainty regarding the approval by the Commission of an executed contract that does not meaningfully differ from the project as bid.

Proposal 2 – Establish date certain for request for Commission approval of contractsCurrently, there are no specific deadlines for when RPS contracts must be executed or when IOUs must request Commission approval for the executed RPS contracts. The proposal would require RPS contracts be executed within one year of Commission approval of the IOU shortlist and filed with the Commission for approval within one month of the date such contracts are signed.

Proposal 3 – Expedited review of certain RPS purchase and sales contracts The Commission has attempted an expedited review process for various types of RPS contracts with extremely limited success. The ruling proposes a pair of new expedited review processes.

1.) Contracts with terms of less than five years be approved by the Commission at the staff level through the Energy Division via an expedited Tier 1 Advice Letter if certain specific conditions are met:

Generation quantity consistent with IOU's net short;

Contract selected from competitive solicitation or bilateral negotiations and has equivalent or better market value than recently executed similar contracts;

Use of pro forma contract; and

Commencement of delivery within one year of execution of the RPS contract.

2.) Contracts with terms of greater than five years that use commercially proven technologies would be approved by the Energy Division via an expedited Tier 2 Advice Letter, if certain conditions are met:

Proposal 4 – Improve standards of review for other RPS contractsRPS contracts that do not meet the new conditions for expedited Tier 1 or Tier 2 review summarized above would continue to be subject to full Commission review via Tier 3 Advice Letter. However, the ruling also proposes alternate standards of review for evaluating three different types of RPS contracts: 1) contracts from a solicitation; 2) bilaterally negotiated contracts; and 3) contract amendments and/or amended and restated contracts. All other RPS contracts must be submitted for Commission approval via an application and subject to different review criteria.

Proposal 5 – New standard of review for RPS contracts for unbundled renewable energy creditsThe ruling proposes a new standard of review for contracts for the purchase of unbundled renewable energy credits (“RECs”). This standard also would apply to IOU sales of excess RPS-eligible procurement that do not qualify for the expedited approval processes outlined in Section C above.

Proposal 6 – New independent evaluator report templateThe ruling proposes specific evaluation criteria that would be included in the report template of the independent evaluator on an IOU’s RPS solicitation, evaluation, and selection process.

Other issuesIn addition to the specific proposals, the ruling also seeks comment on the implementation on the new least-cost best-fit requirements included in Section 399.13(a)(4) of the Public Utilities Code, as well as the continued need for the non-modifiable standard term and condition regarding “green attributes.”

Disclaimer

This advisory is a publication of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.